Markets & Finance

Miami's Condo King Survives the Slump


Early this year, as Jorge M. Pérez struggled to restructure more than $1.5 billion of debt on mostly vacant Florida condominium projects, doctors discovered a tumor the size of a golf ball on his pancreas. "You understand how vulnerable you are," Pérez, 61, says while sitting in his Miami waterfront office, with a view of the skyline shaped by Related Group of Florida, the real estate company he helped launch in 1979. "You're here on a loan, and you never know when they're going to call it."

Pérez, known locally as the Condo King, survived the medical scare. In January, following nine hours of surgery, doctors determined the tumor was benign. After absorbing $1 billion in losses, Related Group has survived, too. On Nov. 16 the company reached a foreclosure agreement with lenders holding a $223 million mortgage on Trump Hollywood, a 41-floor luxury-condo tower in Hollywood, Fla., where 22 of 200 units have sold. The deal put the last of Pérez's seven troubled Sunshine State projects behind him. Related Group lost four of the seven Florida developments to foreclosure, sold its interest in one to a partner, and renegotiated payments on two others. In all but one case, it retained a management or marketing role in the property.

"He's one of the faces of the boom-bust cycle that resulted in the great recession," says Jack McCabe, a real estate consultant in Deerfield Beach, Fla. "He's also one of the real geniuses, because he's been able to stay in business."

As a boy of 10, Pérez fled Cuba with his family after the 1959 revolution. The family lost everything they owned. Pérez remembers watching soldiers at the airport take his mother's jewels, including the rings on her fingers. He finished high school in Colombia, then moved to Miami to start community college, eventually earning a master's degree in urban planning at the University of Michigan in 1976. After graduate school, he returned to work for the City of Miami Planning Dept., followed by a job at Landauer Associates (LDR), a real estate services firm. In 1979, when Pérez was scouting for low-cost housing deals, he competed against a New Yorker named Stephen Ross, founder of Related Cos.

"A woman working for the City of Miami said, 'You guys should get together,' " Ross, 70, recalls. "We both had the same passion." Ross, whose company's real estate portfolio is worth more than $15 billion, says he offered Pérez 15 percent equity in Related's Florida division, which became Related Group. Over time, Pérez's share climbed to 75 percent. Ross says he holds the other 25 percent in the company, which built or manages more than 77,000 housing units in the U.S. and Latin America, and was responsible for 5,500 of the 22,000 condos that sprouted in Miami's central business district from 2003 to 2008. Pérez is also a vice-chairman of the Ross-owned Miami Dolphins of the National Football League and attends home games in the owner's box.

Now, Related is investing again. Pérez says he's using government financing to build affordable housing in Florida's Miami-Dade and Orange counties. Earlier this year he bought shopping malls in Phoenix and Birmingham, Ala. He returned Nov. 18 from India, where he's an investor in a partnership to build middle-class housing.

The median price of a Miami condo is down 58 percent over the past five years, according to Florida Association of Realtors data. To survive the real estate crash, Related Group has cut 300 of 600 employees since 2008. And unlike many developers, Pérez confronted his troubled projects while he still had some negotiating leverage, says Troy Taylor, president of Algon Group, an Atlanta investment bank that advised Pérez on restructuring. Related Group recognized $1 billion in losses in 2008 after buyers couldn't get financing or didn't want to pay for condos they had put deposits on, says Matthew J. Allen, its chief operating officer. In January 2009, the company invited representatives from seven loan syndicates to a conference room at the Hilton Miami Downtown, where Pérez presented a plan for a comprehensive workout. "I had 80 lenders, from all over the world, and each one of them could say no," Pérez says.

Each one did say no, at first. Ultimately, Pérez negotiated deals with all seven syndicates. In May, for example, an HSBC (HBC)-led group with a $482 million construction note repossessed two towers of the Icon Brickell in Miami, allowing Pérez to keep a hand in the building's management. In October, Pérez negotiated a forbearance agreement with a Bank of America (BAC)-led syndicate on a $175 million loan for the Icon's third tower, which also houses a Viceroy hotel. The agreement allows him to stretch out payments and cut prices to speed sales. The Trump Hollywood foreclosure came last month, when an HSBC-led syndicate sold its $223 million mortgage to BH III, a closely held Miami-based investment firm, for $160 million.

For now, Related's projects are much more modest than previous efforts. "We're increasing the size of the management company, being advisers to other people in real estate, and doing things that allow us to survive and, hopefully, prosper," Pérez says.

Yet he hasn't given up on his dream of a tropical Manhattan. He owns sites on Las Olas Boulevard in downtown Fort Lauderdale and off Brickell Avenue in Miami where he has plans for more high-rise condos, though he expects it will be at least three years before he can launch those projects: "If you went to a lender and asked for financing on a condo, they'd either laugh so hard that they'd die or they'd shoot you right on the spot." When the market does perk up, he believes he'll be able to get financing, because he treated investors and lenders fairly during the worst real estate bust in his life. "We never walked away from anything," he says. "Now we're debt free. We're a very strong company."

The bottom line: By negotiating deals with his lenders, Pérez stayed in business and is in a position to build big again when Miami's market revives.

Gittelsohn is a reporter for Bloomberg News in Los Angeles.

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